Prorated Rent Calculator: How to Prorate RentCASAPLORERTrusted & Transparent
What You Should Know
- Calculating prorated rent is quite straightforward if you know whether you use a monthly day count or a yearly day count.
- Leap years may affect the prorated rent, so it is important to consider leap years when calculating prorated rent.
- Prorated rent can be paid at the time of moving in and at the time of moving out, and both cases have different calculations for prorated rent.
How Does a Prorated Rent Calculator Work?
There are 4 inputs used to calculate prorated rent:
Activity refers to the type of event prorated rent is used for. Depending on whether a tenant is moving in or moving out, the calculations of prorated rent will be different.
- Day Count
There are two ways to calculate prorated rent for a month. A monthly day count uses the number of days in a given month to calculate the daily rent. This means that the daily rent in January and the daily rent in February would differ because these months have a different number of days and the same monthly rent. Yearly day count uses the number of days in a full year, which is equal to 365 for regular years and 366 for leap years. Using yearly day count, daily rent does not different between different months.
- Monthly Rent
Monthly rent is used as an input to calculate daily rent and prorated rent.
- Move Date
Move date is the date when a tenant either moves in or moves out. Move date is needed to calculate the number of days the property is occupied. The calculator is inclusive of the day a tenant moves in or moves out, which means that the calculator assumes that the tenant pays rent for the day they move in or move out.
How to Calculate Prorated Rent
Calculating prorated rent is quite straightforward, and it is possible to calculate it by hand. The whole process requires 4 simple steps to calculate prorated rent. Before calculating prorated rent, it is important to decide what day count to use. Using different day count methods, prorated rent may differ a little bit. The following steps are presented for calculating prorated rent based on monthly day count:
- Calculate Basis Days
Basis Days refer to the number of days used to calculate daily rate. Using a monthly day count, a number of basis days is equal to the number of days in a given month. Basis days may vary from 28 days to 31 days depending on the month. Example: A tenant is moving in on January 12th, 2021 to a property that they rent for $1500 per month. The number of basis days is equal to 31 days since January has 31 days.
- Calculate Daily Rent
Daily rent refers to the amount a tenant has to pay daily to cover their monthly rent. It is important to note that daily rent using a monthly day count basis varies from month to month because each month has a different number of days. A simple formula to calculate daily rent using a monthly day count is as follows:
Example: Continuing the previous example, the tenant pays monthly rent of $1500 per month, and there are 31 days in the month of January. Their daily rent for the month of January is equal to $48.39, which can be found using the formula above:
- Calculate the Number of Days a Tenant Occupies a Property in the Given Month
The next step in the process is to understand for how many days a tenant occupies the property during the month when prorated rent is applied. Most often, the move-in and move-out days are considered occupied by a tenant, so they are counted in the number of days. If a tenant moves in, then the number of days is equal to the number of days left in the month since the move in day plus the move in day. On the other hand, the number of days for a tenant moving out is equal to the number of days past since the start of the month.
- Calculate Prorated Rent
The last step is to calculate prorated rent, which is fairly simple. Multiplying the number of days found in the 3rd Step by daily rent found in the 2nd step will yield prorated rent.
Example: Continuing the previous example, the tenant pays a daily rent of $48.39 and occupied the property during January for 20 days, so their prorated rent for the month of January is $967.80.
The same steps apply for calculating prorated rate using yearly day count, but Step 2 uses a different formula. To find daily rent using yearly day count, the monthly rate has to be multiplied by 12 to find yearly rent and divided by the number of days in a year, which is either 365 or 366. This method yields a daily rent that is the same over all months regardless of the number of days a given month has. The formula for calculating daily rent using yearly day count is as follows:Example:
Using the previous example where a tenant is moving in on January 12th, 2021 to a property that they rent for $1500 per month. The number of basis days using yearly day count is equal to 365 because 2021 is not a leap year. Daily rent for the tenant in this case is equal to $49.32.
The tenant is moving in on January 12th, so they will be occupying the property for 20 days during the month of January because January has 31 days.
The tenant pays daily rent of $49.32 and occupies the property for 20 days during the month of January, so their prorated rent for the month of January is equal to $986.40.
When to Prorate Rent
Usually, prorated rent is applied in situations where tenants are either moving in or moving out mid-month. Even though prorating rent is a practice that is fair to a tenant and a landlord, it is often not enforced, which means the landlords may freely refuse to prorate the rent. There are some situations where a landlord may want to consider prorating rent for their future benefit. Prorating rent may lead to the following outcomes that are preferable to landlord:
Better Relationship With the Tenant
It is important to have a good relationship with your tenants because they take care of your property and pay you rent. A prorated rent may be viewed as a friendly gesture that may help build a stronger relationship between the landlord and the tenant.
Lower Vacancy Rates
Prorated rent may also be a good tool to get new tenants to move in faster and lower vacancy rates. Sometimes, landlords may not be able to find people who can move in on a specific date but may find people who can move in a few days later. In this case, it is better to prorate the rent and miss a few days of rent rather than a full month of rent. This may lower the vacancy rates and even tenant turnover.
Of course, it is important to remember that the landlord loses money when they prorate the rent. This means that the benefits of prorating rent always come at a cost. If a landlord believes that the benefit of prorating rent outweighs the cost of it, then they may prorate the rent. It also depends on how competitive the rental market in a certain area is. For example, if there are a lot of renters and not a lot of landlords, the landlords may not be willing to prorate the rent. On the other hand, if there are a lot of landlords and very few renters, then the renters may have more chances to get prorated rent.
The best way to avoid disagreements about prorated rent is to move-in and move-out at the beginning and end of a full rent cycle. On the other hand, if it is impossible to avoid moving in or moving out in the middle of a month, the tenant should always ask for a prorated rent because it is likely that the landlord will agree to do it if the tenant asks about it.